The concept of brand equity (i.e. the perceived value of a brand) firmly arrived in the 1980’s when consumer goods companies reacted to a surge of cut throat discounting with a new search for a more sustainable way to boost sales and profits. The answer was to pour money into well-crafted brands, increase pricing, and highlight distinctive product features, all designed to create a more compelling brand image that would lead to greater loyalty. As David Aaker wrote in his book in 1991, “Managing Brand Equity”, aggressive marketing is needed to generate awareness, create a positive perception of relevant brand qualities, and grow loyalty, the three pillars of brand equity.

While traditional advertising is still important for building brands, it is viewed more and more as a primary driver for creating awareness and/or reinforcing a brand proposition for consumers. What is different today is the impact of the internet, especially for the 86 million Millennials. Mass marketing died several years ago, replaced by more targeted advertising in a highly fragmented marketplace. The big issue with advertising for this Generation Y is trust and credibility. Their behavior is not influenced as much by advertising any more, but by social engagement, online feedback and the experience of their peers and other respected sources:

Only 6 percent of Millennials consider advertising to be credible (source: Edelman Research)

Instead, 95 percent say friends are the most credible source of information

92 percent say trust is the most important influential factor for purchases, although most don’t trust today’s advertising

Among the Millennials, the fastest growing segment is Hispanics, with 904,000 turning 18 each year. The 12.6 million younger 18-34 Hispanics make up 37 percent of all Hispanics, and are even more likely to connect via social media than non-Hispanic Millennials. Another key difference is their strong cultural attachments. Their broad social community and larger families make social media like Facebook and Twitter a natural way to stay in touch and engaged with friends, especially using mobile connectivity.

For all Millennials social engagement via the internet is the key driver for building brand equity today, more than advertising (e.g. overall television viewing is down 9 percent so far this year, more among younger people). A positive perception of a product or service brand is best developed by sharing one’s experience, ideally from friends who generally have honest, objective and non-commercial opinions.

A recent Boston Consulting Group study detected this notable shift among Millennials away from advertising as a source of brand advice. The internet is more influential and engaging, as Millennials are significantly more trustful of social media. For purchasing decisions among Millennials, 5 people (mainly friends – 59 percent) are usually contacted for advice versus only 3 among older people. On average, 49 percent of Millennials say they trust retailer websites, compared to 35 percent for non-Millennials.

The importance of interactive engagement was recognized by Gallup in their 2014 report on the “State of the American Consumer”, saying connecting online is most critical for developing a strong, loyal relationship with customers and even employees, which is the heart of branding. According to Gallup, companies that fully engage customers saw a 240 percent boost in their performance.

While online engagement is primarily a vehicle for communication, what is shared (i.e. the content) is critical for making final decisions and ultimately building brand equity. Millennials identify with brands more personally and emotionally than do older generations. This BCG study found that 59 percent of Millennials buy brands that reflected their own style, culture and personality. Related to this, 40 percent said they were willing to pay extra for a brand that reflected the image they wished to convey, compared to only 25 percent of non-Millennials.

Millennials also view brands as extensions of their own values and status, so what is most important to them? The most influential value shaping their brand preference involves companies that are actively supporting social causes and show concern for the environment and sustainability (48 percent). Other key drivers are brands that are available 24-7 and are viewed as having a personality. In contrast, older generations are driven mainly by brands that (1) “resolve conflicts quickly”, (2) “have a long history and heritage”, and (3) “resolve conflicts sufficiently”.

These Millennial attitudes reflect their growing trust of the internet as an interactive medium. Credibility and authenticity are realized when consumers can openly engage with their friends, in contrast to traditional advertising. The pressing challenge for companies today is how to create greater brand trust and hence build more sustainable brand equity, especially among these Millennials with different values and beliefs. In particular, Hispanic Millennials are more receptive to engaging media when their unique cultural nuances are recognized, as well.

Jay Gronlund is founder of The Pathfinder Group, a business development firm specializing in emotional branding, ideation facilitation and international expansion. His background has included executive positions in marketing and new product development at reputable companies in the US and abroad. He is also vice president, managing director of Latin Pulse - USA, a marketing and research firm headquartered in Mexico City. Jay teaches branding at NYU, and has a B.A. from Colby College and MBA from Tuck at Dartmouth.